JPMorgan China Region Fund

Fund Manager’s Report
As of January 2017

Portfolio Review

Greater China equities surged in January. MSCI Hong Kong Index rally was led by property stocks, as interest rates stabilized following the rise in yields after the U.S. election. MSCI China Index rose despite a flattish performance from onshore equities as the RMB Index finally halted its depreciation against the dollar. Cyclicals continued to outperform, particularly due to a continued sell-off in onshore growth equities as investors fretted about a large volume of IPOs. MSCI Taiwan Index lagged; while small caps bounced, reports of smartphone inventory adjustments, profit-taking in financials and uncertainty due to U.S. trade policy moderated the extent of the market rally. The Fund underperformed due to its underweight in Hong Kong defensives and financials.

Market Outlook

The respite in the dollar’s rise buys China time, as the prospect of capital outflows and a real estate bubble post the 2016 stimulus already pointed to the need to tighten monetary policy. The fading effects of this stimulus, along with uncertainty associated with hawkish U.S. trade and geopolitical rhetoric thus far, should moderate the heady growth seen last year in the industrial economy. With this moderation and tightening, we expect that China’s corporate growth will gradually shift back to the consumer economy.

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